The term 'Managed Floating' exchange rate system means:
A. Exchange rate is completely fixed by the government
B. Exchange rate is fixed in terms of gold only
C. There is no role for the central bank
D. Exchange rate is determined by market forces with occasional central bank intervention
Answer: Option D
Solution (By JKSSB Mock Tests)
Under a managed floating system, the exchange rate is primarily determined by market forces, but the central bank intervenes occasionally to prevent excessive volatility.
Explanation:
Menu costs are the small costs of changing prices. New Keynesian models show that even small menu costs can generate substantial nominal rigidity and real effects of monetary policy.
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